Stock exchanges around the world introduce rules and regulations from time to time in order to protect and sustain the market activity in the long-run. One such rule is Quantity Freeze. It helps to regulate the flow of orders within a certain specified quantity and avoid flash moves in either direction. Any order size above the pre-defined limits will be automatically canceled by NSE and the limits available in the client ID will be blocked for the rest of the day to ensure that such breaches do not occur.
Logic of Quantity Freeze:
In a busy marketplace in which transactions are happening every split second, things can go haywire if the flow is disrupted by disproportionately large buy/sell orders. Whether these orders are placed by large non-institutional players, rogue traders or it happens by accident, it can affect the short-term prices of the underlying derivative contract. For instance, assume that a trader sends an order to sell/short 20,000 Nifty Bank futures by mistake instead of 200. Let’s also assume that he has the limits in his account to fulfill the margin for that trade. By mistake, he would’ve put himself at huge risk and in the process disrupted the order flow for other traders. This is referred to as a fat finger trade and we’ve seen such errors happen in the markets before. A quantity freeze ensures that such mishaps do not happen and trading activity goes on as usual. If traders want to buy or sell large quantities beyond the freeze limits, then they will have to slice it into smaller orders.
Benefits of Quantity Freeze:
• Smooth order flow.
• Better liquidity (Large orders will have to be sent in smaller quantities).
• Better execution
• Avoids accidents (Fat finger trades)
• Discourages the formation of dark pools (As institutions don’t have the incentive to hide from large HFT to some extent).
Information on Quantity freeze limits:
From time to time when there are revisions in the quantity freeze limits, NSE publishes these revisions via circulars. Here is a sample. Often, this is received on short notice and the limits can change based on the exchange’s internal checks.
If your account is locked due to quantity freeze, we request you to get in touch with us immediately so that we can get in touch with the exchange and re-enable your account at the earliest.